Purchase the equipment to minimize the after-tax cost

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Reference no: EM13752037

Company C has a 34% marginal tax rate and uses a 6% discount rate to compute NPV. The company must decide to lease or purchase equipment to use for years 0 through 7. It could lease the equipment for $18,900 annual rent, or it could purchase the equipment for $110,000. The seller would require no money down and would allow company C to defer payment until the end of year 1 at 8% simple interest ($8,800 interest payable in years 0 and 1). The equipment would be 7 year MACRS property with a $20,000 residual value. Should Company C lease or purchase the equipment to minimize the after-tax cost of the use of the property for 8 years.

Reference no: EM13752037

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